The Quick Read: The FHA cash-out refinance caps your new loan at 80% of your home’s appraised value. That means you keep at least 20% equity after closing. The cap applies to the whole new loan, not just the cash you take out. Your payoff balance and costs come out of that 80% first, and whatever is left is your cash.
Key Takeaways
- The ceiling is 80% loan-to-value (LTV), which compares the loan balance to the home’s value. The appraisal sets the value, not a listing site or a neighbor.
- The home must be your principal residence. You generally need to have owned and lived in it for 12 months before the case number is assigned.
- Credit, income, and payment history still decide the outcome. Hitting 80% on paper is not a promise of a loan or a cash amount.
- Your county’s FHA loan limit is a second ceiling. Whichever ceiling is lower controls.
- Other FHA refinances run on different rules. The Streamline and the rate-and-term refinance reach higher leverage because they pay off debt and do not hand you cash.
What Is the FHA Cash-Out Refinance, Exactly?
An FHA cash-out refinance replaces your current mortgage with a new, larger FHA-insured loan. The new loan pays off the old one and the closing costs. You receive the remainder.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
The word that matters is “cash-out.” The proceeds are not limited to paying off existing debt, so you can use the leftover money for repairs, debt payoff, or other needs. That freedom is why FHA holds this loan to a lower leverage cap than its other refinances.
Lendmire arranges the FHA cash-out refinance program as a mortgage broker, placing files with wholesale lenders. Those lenders review the file and make the lending decision. Everything below is subject to lender guidelines and a full file review, and none of it is a commitment to lend.
How the FHA Cash-Out Refinance LTV Limit Works
The formula is simple. Divide the new loan by the appraised value. That number cannot go above 80%.
Say your home appraises at 100 points of value. The most the new loan can reach is 80 points. If you owe 60 points on the current mortgage, you have 20 points of room. Closing costs come out of that room. What remains is your cash.
Three things shape the result:
1. The appraisal. A lower appraisal shrinks the ceiling.
2. Your payoff balance. It uses up room before you see a dollar.
3. Costs and the financed premium. These reduce your net cash.
Here are three modeled scenarios, with every figure expressed as a share of appraised value. They are assumptions, not market data.
| Scenario | Payoff (% of value) | Ceiling | Room before costs |
|---|---|---|---|
| Comfortable equity | 50% | 80% | 30 points |
| Tight equity | 75% | 80% | 5 points |
| Low appraisal | 70% of original value, value drops 5% | 76 points | 6 points |
The low-appraisal row shows the real risk. A 5% drop in value cut the room from 10 points to 6. Appraisal gaps hit cash-out loans harder than people expect, because the ceiling moves at 80 cents on every dollar of lost value.
The break-even is easy to state. You get cash only when your payoff plus costs is below 80% of the appraised value. At 75% payoff, the room can vanish into costs.
What Counts Toward the Cap?
The cap covers the whole new first mortgage, not only the cash you take. It also covers any other liens that stay on the home, which lenders call combined LTV. Both are held to the same 80% ceiling.
On most files, lenders run the cap on the base loan amount. The upfront mortgage insurance premium is financed on top of that. Your loan officer will show you the exact math on your own file.
One practical point: the cash you receive is the new loan minus the payoff and costs. It is not 80% of your equity. People mix those up all the time.
The Cap Has a History
Today’s cap is 80% of the property’s value. It was not always. HUD’s Mortgagee Letter 2019-11 lowered the cap on cash-out refinances from the prior 85% limit. The agency’s stated reason was reducing risk to the FHA Insurance Fund from rising insured balances on these loans.
Before that, the cap had been lowered from 95% to 85%. The 85% limit was first described as temporary while FHA studied whether permanent measures were needed. The change was later folded into Handbook 4000.1, HUD’s rulebook for FHA lenders.
Old articles still quote 85% or 95%. Those are prior limits. The 80% cap is the rule for current cash-out loans. Handbook text gets revised, so confirm the current version before you rely on any detail here.
LTV Cap vs. County Loan Limit: Which One Binds?
You face two ceilings. One is the percentage cap. The other is the FHA county loan limit, a dollar maximum that varies by county and changes every year. County loan limits apply to the new loan, and this article does not quote them.
The lower of the two controls:
- Modest-value home, strong equity: the 80% cap usually binds first.
- High-value home in a lower-limit county: the county limit can bind first, even when 80% of value would be higher.
- Both close together: the appraisal decides which one wins.
So a large equity pile does not guarantee a large cash-out. A homeowner with a lot of equity in a high-priced home may be held back by the dollar limit, not the percentage.
Eligibility: The Rules Behind the Number
Meeting the LTV test is only one gate. Across the wholesale programs Lendmire places FHA files with, these are the rules that decide most cash-out files.
Principal residence only. FHA cash-out is for the home you live in. Rental properties and second homes are not eligible for FHA cash-out. Occupancy decides the leverage, so an investment property is a different loan entirely.
Twelve months of ownership and occupancy. The cash-out refinance reaches 80% on a home you have owned and lived in for 12 months before the case number is assigned. A move-in date inside that window can delay a file more than thin equity does.
Clean payment history. Lenders look hard at your recent mortgage payments. Recent late payments can stop a cash-out file, and a very short payment history can disqualify it. Exact payment-history thresholds sit in the Handbook and in lender overlays, so confirm them with your loan officer.
Credit and ratios. The wholesale programs Lendmire works with start at a 580 decision score. Debt-to-income ratios begin at 31/43 (housing and total debt as a share of income) with no compensating factors. Documented compensating factors, such as reserves or a strong payment record, can stretch ratios as far as 40/50 at the top tier. The automated underwriting finding governs most files. Some lenders set stricter floors than the program does.
Non-occupant co-borrowers. On a purchase, FHA allows one. On cash-out, they are generally not permitted. Confirm this with your lender if it matters to your file.
The Appraisal Does More Than Set Value
An FHA-roster appraiser values the home. That same appraisal checks the property against FHA minimum property standards. A peeling roof or a safety issue can force repairs before closing.
If you bought the home within the past 12 months, the value used for the cap may be the lower of the appraisal or the purchase price, according to secondary summaries of the rules. Treat that as a point to confirm, since cash-out generally needs the 12-month history anyway.
Mortgage Insurance: What It Does to the Math
Every FHA loan carries mortgage insurance. There are two parts, and neither one is a price quote.
- Upfront premium: 1.75% of the base loan, usually financed into the balance. HUD’s Mortgagee Letter 2023-05 sets the upfront figure and revised the annual premiums.
- Annual premium: a monthly charge that runs between 0.15% and 0.75% of the balance a year. Where you land depends on term, loan amount, and LTV.
A cash-out loan tops out at 80% LTV, so it falls at or below the 90% line. On a thirty-year loan, the annual premium ends after eleven years. It does not drop off when you reach 20% equity later. Duration depends on the original LTV and term, so check the details in the Mortgagee Letter. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Financing the upfront premium raises your balance. A bigger balance, a restarted term, and new insurance all land in your monthly budget.
How the FHA Cash-Out Compares to Other FHA Refinances
Streamline and rate-and-term refinances get confused with cash-out, and they should not be.
| Factor | FHA Cash-Out | Rate-and-Term | Streamline |
|---|---|---|---|
| Cash to you | Yes | No | No |
| Maximum LTV | 80% | 97.75% | No LTV test |
| Appraisal | Yes | Yes | None |
| Existing FHA loan needed | No | No | Yes |
The Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It must show a net tangible benefit, and the mortgage insurance continues. The rate-and-term refinance reaches 97.75% on a principal residence you have occupied for the previous twelve months.
The 80% cap belongs to cash-out only. If you want cash, you take the lower leverage. If you only want a different term or payment structure, a different FHA refinance may fit better. Lendmire’s piece FHA Cash-Out LTV Limit When Refinancing an Existing FHA Loan walks through that path. If your current loan is conventional, there is a separate piece FHA Cash-Out LTV Limit When Moving From a Conventional Loan.
Where the Rule Bends: Edge Cases
The general rule breaks in a few named places. Treat each of these as a prompt to confirm current Handbook text, not as a final answer.
- Hawaiian Home Lands (Section 247). The 80% change does not apply to these mortgages.
- Inherited homes. An exception to the 12-month occupancy test exists for inherited property, with conditions such as whether it was rented.
- Homes with no mortgage. A cash-out can withdraw equity from a home owned free and clear. The loan is still a cash-out and still held to 80%.
- Manufactured homes. The home generally must have been permanently installed on its site for over a year before the case number is assigned.
- Case numbers from the older rules. Loans under older case numbers fell under older caps. Current loans use 80%.
- Multi-unit owner-occupied homes. FHA covers one to four units when you live in one of them. Lenders can apply their own overlays.
Using the Cash: What Borrowers Do and What It Costs
Many borrowers use cash-out money to pay off other debt. The CFPB reports that borrowers often pay down credit card and auto loan debt. In its data, credit scores improved sharply at first, then gradually worsened, though they stayed above pre-refinance levels.
The tradeoff is real. In its research on cash-out refinances, the CFPB notes that converting non-mortgage debts into mortgage debt secured by the home can put the home at risk of foreclosure if payments become unsustainable. Paying off a card with your house behind it changes the stakes.
Before you commit, compare the alternatives. A home equity loan or HELOC leaves your first mortgage in place and adds a second lien. A conventional cash-out refinance has its own leverage and seasoning rules. The right choice depends on your current loan and your equity.
If You Don’t Have Enough Equity
You have four honest options:
1. Wait. Payments and value changes both build room over time.
2. Pay down the balance. Lowering the payoff widens the gap under 80%.
3. Borrow less. You do not have to take the maximum. A smaller loan can keep the new balance and the financed premium lower.
4. Choose a different loan. A Streamline or rate-and-term refinance may fit if cash is not the goal.
The stronger play for many tight-equity households is to skip cash-out entirely. The 80% cap can swallow the room, and what is left may not justify a larger balance and new insurance.
Misconceptions That Cost Borrowers Time
- “FHA lets you borrow 85% (or 95%).” Those were earlier limits.
- “80% LTV means I’m approved.” Credit, income, payment history, appraisal, and costs still decide.
- “It works on my rental.” Not for FHA cash-out. The home must be your principal residence.
- “A cash-out and a HELOC are the same.” A cash-out replaces your first mortgage. A HELOC adds a second one.
- “Mortgage insurance ends at 20% equity.” On FHA, duration is tied to original LTV and term. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Key Terms Defined
Loan-to-value (LTV): The new loan balance divided by the home’s appraised value, shown as a percentage.
Combined LTV (CLTV): The same ratio, but counting the first mortgage plus any other loans secured by the home.
Adjusted value: The appraised value that FHA uses to run the cap, not your own estimate.
Cash-out refinance: A new mortgage that pays off the old one and gives you the leftover money.
Case number: The FHA identifier assigned to your loan, which starts the clock on rules like the 12-month test.
Upfront mortgage insurance premium: A one-time FHA insurance charge, 1.75% of the base loan, usually financed.
Weighing Your Options
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Reach a loan officer at 828-256-2183, or request a quote to see where your home sits against the 80% line.
Frequently Asked Questions
What is the maximum LTV for an FHA cash-out refinance?
It is 80% of the appraised value. That ceiling covers the full new loan, not only the cash portion. You must keep roughly 20% equity after closing.
Can I get 80% LTV and still be denied?
Yes. The cap is a ceiling, not an approval. Credit, income, debt ratios, payment history, and the appraisal all decide the outcome, and lenders can set stricter rules than the program. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Does the 12-month rule apply if I inherited the home?
An exception to the occupancy test exists for inherited property, with conditions such as whether it was rented. Exact wording sits in the Handbook, so confirm it against the current text with your loan officer.
How much cash will I actually receive?
You get the new loan minus your payoff balance and costs. The upfront premium is usually financed, so it raises the balance rather than coming out of pocket. A low appraisal shrinks the number faster than most borrowers expect.
Can I use an FHA cash-out on a rental or second home?
No. FHA cash-out is for a principal residence only, and occupancy decides the leverage.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Handbook 4000.1 Update transmittal
3. HUD Mortgagee Letter 2023-05
4. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
5. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Refinance an Existing FHA Loan After a Divorce Award · Refinance Requirements by Program for Leaving FHA Insurance Behind · How to Refinance an Existing FHA Loan Into Conventional
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.